The first quarter of 2025 kicked off with a rollercoaster ride for the decentralized application (dapp) industry. While the number of daily unique active wallets (dUAW) dropped by 3%, artificial intelligence (AI) and social dapps surged, showing strong user adoption. 

Meanwhile, decentralized finance (DeFi) took a significant hit, losing billions in total value locked (TVL) and experiencing one of the largest hacks in history, according to a report from DappRadar. The quarter also saw continued volatility in the NFT market and a staggering $2 billion lost to hacks and scams.

Despite an overall decline in dapp activity, AI-powered applications proved to be the breakout trend of the quarter. AI-based dapps saw a 29% increase in daily active users, reaching 2.6 million, while social dapps grew by 10%, hitting 2.8 million dUAW. This shift signals a growing appetite for AI-driven experiences and social engagement in Web3. 

Among the standout performers was LOL, a social AI dapp that rewards users for sending genuine laughter in Telegram. Dmail Network introduced a decentralized AI-powered email and notification system, while Balance, backed by a16z, launched an interactive AI entertainment platform. 

MEET48 combined metaverse interactions with virtual idols, and MomoAI established itself as a social Web3 hub featuring AI-powered digital personas. Meanwhile, Solana remained a dominant force, with three of the top five dapps running on its blockchain. The memecoin-driven Pump.fun saw activity spike by 112%, highlighting continued interest in token speculation.

DeFi faced a brutal Q1, with TVL falling to $156 billion, a 27% quarter-over-quarter drop. The sector was rattled by macroeconomic pressures, the crash of ETH, which lost 45% of its value, and a catastrophic $1.4 billion hack on Bybit. 

However, one blockchain defied the downturn. Berachain emerged as a standout performer, attracting massive capital inflows and announcing $142 million in funding, signaling a growing appetite for fresh DeFi ecosystems.

The NFT market also experienced turbulence, with trading volume plummeting 24% to $1.5 billion. However, the decline in sales count was only 10%, suggesting that the average sale price dropped rather than a mass user exodus. 

Profile picture NFTs continued to dominate, accounting for 56% of the market share, while Real World Asset NFTs, led by Courtyard, began to gain traction. OpenSea maintained its lead in sales volume, while OKX topped the charts in trading volume following the release of its OS2 upgrade, supporting 14 new blockchains.

Q1 2025 was one of the worst periods for Web3 security in recent history. Over $2 billion was drained from the ecosystem due to a wave of hacks and scams. The largest breach of the quarter occurred with Bybit, which lost $1.4 billion in a cyberattack linked to North Korean hackers. 

The LIBRA meme coin rug pulled investors for $250 million after being endorsed by Argentine President Javier Milei, while the MELANIA coin, launched by Melania Trump, collapsed in a $200 million scandal. A $50 million attack on Infini Stablecoin, allegedly carried out by a former developer, and a $37 million breach of the Phemex exchange further underscored the urgent need for stronger security measures in the space.

As the dust settles on a chaotic Q1, the crypto industry continues to evolve. AI-driven dapps are gaining momentum, RWAs are carving out market share in NFTs, and DeFi is facing mounting pressure from emerging chains. Despite the setbacks, the industry remains resilient. With AI, tokenization, and digital identity emerging as dominant narratives, the next quarter will be crucial in shaping the future of Web3.